Original Title: "Saga Co-founder: Every Chain is an Island, Crypto Assets Face Liquidity Crisis"

Original author: Saga Co-founder and Chief Strategy Officer Jin Kwon, CoinTelegraph

Original text compiled by: Baishui, Golden Finance

Encryption has made significant progress in improving transaction throughput. New Layer 1 (L1) and side networks offer faster and cheaper transactions than ever before. However, a core challenge has come into focus: Liquidity fragmentation—capital and users are dispersed across an ever-growing maze of blockchains.

In a recent blog post, Vitalik Buterin emphasized how successful scaling has led to unforeseen coordination challenges. With so many chains and such a dispersed value among them, participants face daily struggles with bridging, swapping, and wallet switching.

These issues affect not only Ethereum but also nearly all ecosystems. No matter how advanced a new blockchain is, it has the potential to become a liquidity "island" that is difficult to connect with others.

The True Cost of Fragmentation

Liquidity fragmentation means that traders, investors, or decentralized finance (DeFi) applications do not have a single asset "pool" to take advantage of. Instead, each blockchain or sidechain has its own fixed liquidity. This isolation poses multiple challenges for users looking to purchase tokens or access specific lending platforms.

Switching networks, setting up dedicated wallets, and paying multiple transaction fees are far from seamless, especially for those who are not very tech-savvy. The liquidity in each isolated pool is also weak, leading to increased price discrepancies and trading slippage.

Many users utilize bridges to transfer funds between chains, but these bridges often become targets for attacks, causing fear and distrust. If the transfer of liquidity is too cumbersome or poses too much risk, DeFi cannot gain mainstream momentum. Meanwhile, projects are competing to deploy across multiple networks, or they risk being eliminated.

Some observers are concerned that fragmentation could force people back to a few dominant blockchains or centralized trading platforms, undermining the decentralized ideology that has driven the rise of blockchain.

Familiar fixes still have gaps

A solution to this problem has emerged. Bridges and wrapped assets have achieved basic interoperability, but the user experience remains cumbersome. Cross-chain aggregators can route tokens through a series of exchanges, but they often do not merge the underlying Liquidity. They only help users navigate.

At the same time, ecosystems such as Cosmos and Polkadot have achieved interoperability within their frameworks, even though they operate in different domains within the broader encryption space.

The problem is fundamental: each chain believes it is different. Any new chain or subnetwork must be "inserted" at the underlying level to truly unify Liquidity. Otherwise, it will add another Liquidity domain that users will have to discover and bridge. This challenge becomes more complex as blockchains, bridges, and aggregators see each other as competitors, leading to deliberate isolation and making fragmentation more apparent.

Integrating Liquidity at the Base Layer

The integration of the base layer addresses the issue of Liquidity fragmentation by directly embedding bridging and routing functions into the core infrastructure of the chain. This approach appears in certain Layer 1 protocols and dedicated frameworks, where interoperability is regarded as a fundamental element rather than an optional add-on.

Validator nodes automatically handle cross-chain connections, allowing new chains or side networks to be launched immediately and access a broader ecosystem's Liquidity. This reduces reliance on third-party bridges that often bring security risks and user friction.

The challenges that Ethereum itself faces in heterogeneous Layer 2 (L2) solutions highlight the importance of integration. Different participants—Ethereum as the settlement layer, L2 focused on execution, and various bridging services—each have their own motivations, leading to fragmented Liquidity.

Vitalik's mention of this issue emphasizes the need for a more cohesive design. The integrated base layer model brings these components together at launch, ensuring that funds can flow freely without forcing users to navigate multiple wallets, bridging solutions, or aggregators.

The integrated routing mechanism also integrates asset transfers, simulating a unified liquidity pool behind the scenes. By capturing a fraction of the overall liquidity flow rather than charging users for each transaction, such protocols reduce friction and encourage capital flows across the network. Developers deploying new blockchains have immediate access to a shared liquidity base, while end users can avoid using multiple tools or encountering unexpected fees.

This emphasis on integration helps maintain a seamless experience, even with more networks coming online.

Not just an Ethereum issue

Although Buterin's blog post focuses on Ethereum's aggregation, fragmentation is unrelated to the ecosystem. Regardless of whether a project is built on a chain compatible with the Ethereum Virtual Machine, a WebAssembly-based platform, or another platform, if Liquidity is isolated, a fragmentation trap will occur.

As more and more protocols explore foundational layer solutions—embedding automatic interoperability into their chain designs—there is hope that future networks will not further fracture capital, but rather contribute to the unification of capital.

A clear principle emerges: without connectivity, throughput is meaningless.

Users do not need to consider L1, L2, or sidechains. They just want seamless access to decentralized applications (DApps), games, and financial services. If the experience of stepping onto a new chain feels the same as operating on a familiar network, then adoption will occur.

Towards a Unified and Liquid Future

The attention of the encryption community to trading throughput reveals an unexpected paradox: the more chains we create to increase speed, the more the advantages of our ecosystem are dispersed, and this advantage lies in its shared liquidity. Every new chain aimed at increasing capacity creates another isolated capital pool.

Building interoperability directly into the blockchain infrastructure provides a clear path to solving this challenge. When the protocol automatically handles cross-chain connections and routes assets efficiently, developers can scale without fragmenting their user base or capital. The success of the model comes from measuring and improving how smoothly value flows across the ecosystem.

The technical foundation for this method already exists. We must implement these measures seriously and pay attention to security and user experience.

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